3 unexpected ways that inflation could affect your clients’ wealth this year

Inflation describes an average year-on-year increase in the price of goods and services around the UK.

When the government began easing lockdown measures, inflation began to rise, resulting in a peak of 11.1% in October 2022, the Office for National Statistics (ONS) reports. Since then, inflation has eased again, standing at 3.2% as of March 2024.

Seeing as inflation is falling at a steady pace, it may easily fall to the back of your clients’ minds, as well as your own. But it’s crucial to remember how inflation could continue to affect your clients’ money, even if it is slowly declining after its double-digit peak.

Here are three unexpected ways that inflation could continue to affect your clients’ finances this year.

1. Although inflation is “falling”, prices are still rising

Upon hearing that inflation is “falling”, your clients may take this to mean that the average price of goods and services is going down.

In fact, they are still going up – just more slowly than they were before. The 11.1% inflation rate from October 2022 has not gone away, but prices have actually continued rising from that point, just at a slower rate of 3.2% (as of March 2024).

With this in mind, your clients could still be feeling the full effects of inflation, particularly on their monthly spending.

If they see that inflation is decreasing, they might go ahead and loosen their budget – when actually, it could help for them to continue living more frugally in the coming months.

2. Your retired clients could experience a decline in their pension’s spending power

If you have retired clients who are living on a finite pot of financial resources, they may notice that their spending power continues to be weakened by inflation.

Indeed, according to the Pensions and Lifetime Savings Association (PLSA), as of 2024, the average annual cost of a “moderate” retirement increased from £23,300 to £31,300 for a single person, and from £34,000 to £43,100 for a couple. These figures are based on a couple spending £95 a week on groceries and taking a week’s holiday in Europe once a year, among other factors.

This significant jump in the average cost of being retired could continue to dampen your clients’ later-life spending power. If they retired as little as five years ago, their retirement affordability is likely to have changed quite dramatically since they first drew from their pension(s).

As such, it is important for your clients to keep inflation in mind as they continue to draw their later-life income.

While inflation could fall to 2% in the next 12 months, which the Bank of England (BoE) has set as its target rate, the cost of living increase experienced in the wake of the pandemic may still be experienced as a more permanent fixture.

3. Your clients’ adult children may need more financial support

The adverse effects of inflation are not only felt strongly by the retired population, but by the lower-earning younger generations too.

Research from Moneyhub, published by MoneyAge, reveals that nearly half (48%) of adults aged between 18 and 34 have put life plans on hold due to the cost of living crisis. Those in this age bracket are likely to postpone important milestones, such as having children or buying their first home, due to affordability concerns.

If your clients have adult children in this position, they could be eager to offer financial help.

For instance, if they had already planned to offer a lump sum to help their children place a deposit on a first home, your clients may find that the amount needed to cover this cost has risen. Or, your clients could want to offer a regular income top-up to their children in light of persistent inflation.

In any case, offering such support could put your clients’ finances under further pressure.

If these goals are important to them, then they may find a way to facilitate the financial gifts they wish to offer – but it is crucial that your clients consider any potential ramifications, especially with the cost of living set to remain high for the foreseeable future.

Working with a financial planner could put your clients’ inflationary concerns at ease

A financial planner can offer qualified insights into how inflation could affect your clients’ wealth over the long term.

What’s more, we can use cashflow planning technology to model the direct effects of inflation on their money, while considering factors such as offering financial gifts to loved ones and drawing a sustainable retirement income.

If your clients wish to benefit from financial planning in a time of higher-for-longer costs, they can contact us on enquiries@prosserknowles.co.uk or call 01905 619 100.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.